Louisiana got some bad news from the federal Center for Medicaid Services (CMS) late last Friday. CMS says “no deal” on six of the LSU hospital public-private partnerships.

“I don’t know what their issue is, but it appears that the basis for the denial is related to the means of financing—specifically as it relates to the advance lease payments,” Commissioner of Administration Kristy Nichols told the House Appropriations committee Monday.

The denial letter indicates the feds view the up-front lease payments for hospital facilities and equipment as “provider-related donations”—in other words, a form of quid pro quo provided by the private partners which actually got the contracts.

Pat Seiter, an attorney for the LSU Hospital System, admits that was part of the partnership negotiations.

“Certainly it was encouraged that they would make advance lease payments,” Seiter told the committee. “We felt like if they had made advance lease payments, they would have effectively— I hate the term ‘skin in the game’, but that’s really what it kind of came down to.”

In the letter, CMS says those advance lease payments can’t be used to draw down federal Medicaid money. That has House Speaker Chuck Kleckley concerned about the ultimate impact to the state budget, which could be hundreds of millions of dollars.

“The reality is, there is no room in the budget,” Kleckley told fellow committee members and Nichols, in particular. “There is no room this year or next year. And we can’t go back from the partnership that we have. So this issue has got to be resolved. It needs to be resolved A.S.A.P.”

Nichols assured lawmakers the denial is being appealed, and the administration will continue to try and work everything out with CMS. She also advised the committee that even if the denial stands, there won’t be a state budget impact before September 2015. That’s the Fiscal Year 2016 budget, which legislators will wrangle with next spring.

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The reinvention will likely come up again in the legislature when it convenes in March as lawmakers dig up debate on Medicaid expansion under Obamacare. And the candidates for governor will be staking out positions on healthcare reform.

It’s been nearly a year since the state started implementing public-private partnerships for the LSU Hospital System, formerly known as Louisiana’s Charity Hospitals. The plan was pushed as a cost-saver for the state. How is it working out? Good for some and not so good for others—with patients and hospital caregivers caught in the middle.